Court Win for a Rule Breaker

Submitted by Doug Lederman on February 16, 2006 - 4:00am

Just about every college coach's contract, particularly at institutions that play big-time sports, calls for dismissal if a coach breaks major rules. Ohio State University had such clauses in its multimillion-dollar pact with Jim O'Brien, its former men's basketball coach, and in 2004, Ohio State officials announced that they were firing O'Brien because of what President Karen Holbrook described as "serious" violations of NCAA rules that "simply cannot be tolerated."

The violations -- a $6,000 "loan" to a foreign player whom the university was trying to recruit, and O'Brien's failure to tell Ohio State about the money -- put the coach in breach of his contract, university officials said.

On Wednesday, a state judge agreed that, yes, O'Brien had broken NCAA rules and that he had, by doing so, violated the terms of his contract. But in siding with the former coach in his $9.5 million lawsuit against the university, Ohio Court of Claims Judge Joseph T. Clark ruled,[1] essentially, that the violations weren't serious enough, based on how O'Brien's contract was written, to warrant his firing.

"The court is persuaded, given the contract language, that this single, isolated failure of performance was not so egregious as to frustrate the essential purpose of that contract and thus render future performance by defendant impossible," Clark wrote. A second part of the trial will determine how much Ohio State owes O'Brien, though university officials suggested in a statement Wednesday[2] that they plan to appeal Wednesday's ruling.

While some legal experts said they believed the ruling could undermine colleges' ability to crack down on coaches and other sports officials who break rules, the case is probably best viewed as a warning to universities that they must draft contracts with painstaking care, especially in what Paul H. Haagen calls the "high stakes world of big-time college sports." "When coaches are paid this kind of money, institutions have to be extraordinarily careful to protect their freedom of action and their ability to deal with emerging situations," said Haagen, a professor of law at Duke University. "In the absence of very carefully drafted kinds of contracts, an institution exposes itself to this kind of potential liability."

O'Brien was brought to Ohio State in 1997 to clean up a mess involving another set of rules violations, and he worked wonders, leading the team to four straight appearances in the National Collegiate Athletic Association tournament from 1999 to 2002. In 1999, he signed a contract extension through 2007. Although it contained some of the standard prohibitions against NCAA rules violations, the contract was, in the words of Judge Clark, "much more favorable" to O'Brien than his previous contract, and "placed significant limitations upon [Ohio State's] right to terminate [O'Brien].

Unbeknownst to Ohio State officials, O'Brien had, in 1998, given $6,000 to a 7' 3" Yugoslavian basketball player named Alex Radojevic (the player's father had died, putting his family in dire financial straits, and O'Brien portrayed the payment as a humanitarian gesture). The coach characterized the money as a loan, though he acknowledged, the court's ruling said, "that there was no written loan agreement and that the terms for repayment were not discussed."

NCAA rules prohibit colleges from giving money or other benefits to current athletes or players they are recruiting. In O'Brien's view, however, the loan was allowable, he argued to the court, because Radojevic had, in 1996, signed a contract with a professional Yugoslavian team and been paid. The court's ruling contains some fascinating dueling testimony from experts on NCAA rules about the plausibility of O'Brien's argument that he thought Radojevic was a pro. But the judge -- persuaded by the fact that Ohio State later asked the NCAA to declare Radojevic eligible to compete in college, and the fact that O'Brien did not tell anyone at the university about the loan until 2004 (suggesting that maybe he thought it was against the rules) -- concluded that O'Brien "had reasonable cause to believe that he had committed an infraction."

That question -- did O'Brien know that he had broken a rule? -- is important because the coach's contract required him to "immediately report" to Ohio State sports officials if he had "reasonable cause to believe that any person or entity ... has violated or is likely to violate" any NCAA or Big Ten Conference rules. Citing that clause, the judge ruled that O'Brien did breach his contract.

But the court's analysis did not stop there, unfortunately for Ohio State. While O'Brien may have breached that one clause in his contract with Ohio State, Clark ruled, that failure was not a fireable offense, because other language in the contract severely restricted the grounds under which the university could dismiss O'Brien "for cause," and therefore without paying him severance.

The clause in the contract that referred directly to NCAA rules violations kicked in only at the point that the association, after completing an investigation, found that the coach had committed or known about rule breaking that resulted in penalties against the university or, at least, in a finding that Ohio State lacked "institutional control" over the men's basketball program. Because Ohio State had sought to fire O'Brien in June 2004, when the NCAA was in only the early stages of its investigation into the Radojevic case, the university could not lean on that clause of the contract to fire O'Brien (and the termination letter Ohio State gave O'Brien at the time made no mention of that clause. Instead, it focused on language that allowed Ohio State to fire O'Brien for a "material breach" of the agreement.

So the whole breach of contract lawsuit, in Judge Clark's opinion, came down to a question of whether the broken rules represent a "failure to do something that is so fundamental to a contract that the failure to perform that obligation defeats the essential purpose of the contract or makes it impossible for the other party to perform under the contract."

And in the judge's view, the rule breaking that O'Brien engaged in was not serious enough to meet that test. Among his conclusions: (1) the penalties that the NCAA might impose in response to O'Brien's wrongdoing "are not as debilitating to [Ohio State's] basketball program" as the university suggests; (2) "the court is not convinced that the Radojevic matter, standing alone, caused serious harm to the reputation of either the men's basketball program or the university as a whole;" (3) the loan and O'Brien's decision to hide its existence, while clearly not made in good faith, "does not demonstrate the degree of willfulness normally associated with bad faith."

All things considered, Clark ruled: "Because [O'Brien's] failure of performance was not material, [Ohio State] did not have cause for termination. Because [Ohio State] did not have cause for termination, [Ohio State] was contractually obligated to pay plaintiff in accordance with the provisions relating to termination other than for cause. [Ohio State] breached the contract by refusing to pay plaintiff."

Experts on college sports law had mixed assessments of potential impact of the Ohio State decision. In an e-mail message, Michael McCann, assistant professor of law at Mississippi College School of Law and a contributor to Sports Law Blog,[3] characterized as "interesting" Clark's conclusion that a "clear NCAA violation by Jim O'Brien" does not constitute a material breach of his employment contract. He added: "By implication, the judge seems to be diminishing the importance of NCAA recruiting rules, and the idea that a rule violation should not constitute a material breach could -- in theory -- create deleterious incentives for coaches when recruiting players."

But Haagen of Duke took a narrower view, saying the case in no way "goes to the authority of the NCAA to regulate or of the authority of Ohio State to regulate" college sports or the behavior of coaches.

"This is not judicial activism," he added. "This is what judges are supposed to do -- using basic contract law to decide whether" Ohio State followed the contract it had with O'Brien. ("Whether the judge got it right from a factual standpoint," he said, "is a different matter," on which he did not offer a judgment.)

But the lesson for Ohio State and other colleges, he said, is that "institutions should be incredibly careful about putting themselves in a position in which a judge, doing what a judge is supposed to do, will hold them liable for things they believe with good reason -- whether or not it's sufficient reason -- that they need to do."

He added: "Institutions need to be very careful about the kind of agreements that they sign, in a world in which there are regulatory bodies that could act against them. Failure to do so could cost them a lot of money."